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Simple English definitions for legal terms

formula AB trust

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A quick definition of formula AB trust:

A formula AB trust is a way for rich married people to avoid paying too much estate tax. When one spouse dies, their property is split into two trusts. The first trust, called the bypass trust, is for the deceased spouse's property up to a certain amount. This trust is given to other people, usually their children, and the surviving spouse can't use it too much. The second trust, called the survivor's trust, is for the surviving spouse's property and they can use it however they want. When the surviving spouse dies, both trusts go to the people they named to get them.

A more thorough explanation:

A Formula AB trust is a legal tool used by wealthy married couples to maximize their estate tax exemptions. It involves creating two separate trusts after one spouse passes away.

One trust, called the Bypass Trust, holds the deceased spouse's portion of the couple's property up to the applicable exclusion amount (which is currently $12.06 million in 2022 for individuals). This trust is irrevocable and will pass to beneficiaries other than the surviving spouse, usually their children. The surviving spouse must follow the trust's plan without overly benefiting from its operation, but they often receive income from the trust to live on for the rest of their life.

The other trust, called the Survivor's Trust or Trust A, holds the surviving spouse's portion of the property. The surviving spouse has control over this trust and may use it as they wish. When the surviving spouse passes away, both trusts pass completely to their named beneficiaries.

For example, let's say John and Jane are a wealthy married couple. John passes away, and his portion of the couple's property is put into the Bypass Trust, while Jane's portion is put into the Survivor's Trust. The Bypass Trust will pass to their children, while Jane has control over the Survivor's Trust. When Jane passes away, both trusts will pass to their named beneficiaries.

Formula AB trusts are called "formula" trusts because they are designed to not exceed the applicable exclusion amount. This means that the trusts are structured in a way that ensures that the couple's estate tax exemptions are maximized without incurring additional taxes.

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babycat
16:13
@shaquilleoatmeal: yeah but then you have to go to Boston :(
shaquilleoatmeal
16:14
uva too
shaquilleoatmeal
16:14
whats wrong w boston ;(
GOT PROMOTED YAY how do i tell law schools abt this?
like do i type up and separate doc and send as an attachment? how much do i write?
shaquilleoatmeal
16:15
@jackfrost11770: LFGGGG
TYYYYYY
shaquilleoatmeal
16:16
do any of your schools have updated sections in the portal? If so, i'd upload there, if not email. Small paragraph should do it id think
1a2b3c4d26z
16:16
Who wanna play some operation metro later on
1a2b3c4d26z
16:16
Congrats jack!
thank you!!
babycat
16:16
@jackfrost11770: personally I would submit an updated resume reflecting the new position instead of a paragraph but idk what SOP is
getting a bacon egg and cheese in celebration
1a2b3c4d26z
16:18
lfg baby you earned that
babycat
16:20
also congrats!! big win
initiallaw
16:23
congrats!!
:D
the big W is that i get reimbursed for travel now thank GOD
jack moving up in the world :)
i have a brother named jack, so whenever i see your name im marginally happier than normal
babycat
16:37
I'm guessing you don't have a sibling named babycat but I hope I still make you marginally happier than normal despite this
JumpySubsequentDolphin
16:38
maybe he has a babycat
babycat
16:38
I think everyone should have a babycat
JumpySubsequentDolphin
16:39
im allergic to baby cats >:(
JumpySubsequentDolphin
16:40
I used to have a babycat, I only got allergies after he died
JumpySubsequentDolphin
16:40
I think he’s haunting me
babycat
16:40
:(
babycat
16:40
that's too bad
babycat
16:40
you still have me though <3
@babycat: you make my day marginally happier with your scathing wit
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